A "20-20" VIEW OF INVENTION REPORTING TO THE NATIONAL INSTITUTES OF HEALTH

A "20-20" VIEW OF INVENTION
REPORTING TO THE NATIONAL INSTITUTES OF HEALTH
Adapted and updated from: NIH
GUIDE, Volume 24, Number 33, September 22 1995
P.T. 34; K.W. 1014006
National Institutes of Health

INVENTION REPORTING TO THE
NIH: 20 QUESTIONS

THE DISCUSSION OF 20 QUESTIONS TO ASSIST IN
THE UNDERSTANDING OF BAYH-DOLE ACT-RELATED INVENTION
AND PATENT REPORTING.

The regulations codified at 37 CFR Part 401,
"Rights to Inventions made by Nonprofit Organizations
and Small Business Firms" apply to all grantees
and contractors, including universities and other
non- firms. The Department of Commerce has been
designated the responsible Federal agency for
these regulations as they emanated from Public
Law 98-620 (November 8, 1984), which amended Public
Law 96-517 (December 12, 1980), more commonly
known as the Bayh-Dole Act. This law amended Title
35 USC, by adding Chapter 18, Section 200-212.
Other regulations that address these issues are
OMB Circular A-124 (February 10, 1982) and a February
18, 1983 Presidential Memorandum on "Government
Patent Policy" in 37 CFR 401. The Presidential
Memorandum was incorporated into the text of OMB
A-124 on March 24, 1984. It was not until 1987
that all of these provisions were finalized in
rulemaking and published by the Department of
Commerce.

2.
WHAT IS THE BAYH-DOLE ACT AND WHY IS IT IMPORTANT?

The Bayh-Dole Act encourages researchers to patent
and market their inventions by guaranteeing patent
rights. This Act automatically grants first rights
to a patent for an invention fully or partially
funded by a Federal agency to the awardee organization.
To obtain these benefits, however, the inventor
and the organization have several reporting requirements
that protect the rights of the Government. This
landmark legislation is important because it gives
nonprofit organizations and small business firms
the right to elect to retain title to inventions.
The objectives are to: use the patent system to
promote utilization of inventions arising from
Federally supported research; encourage maximum
participation of small business firms in Federally
supported research and development efforts; promote
collaboration between commercial and nonprofit
organizations; ensure that inventions made by
nonprofit organizations and small business firms
are used in a manner that promotes free competition
and enterprise; promote commercialization and
public availability of inventions made in the
United States by United States industry and labor;
and ensure that the Government obtains sufficient
rights in Federally supported inventions to prevent
the unreasonable use of inventions.

3.
WHAT ARE THE PRINCIPAL FEATURES OF THE BAYH-DOLE
ACT, AS IMPLEMENTED BY 37 CFR 401.14, THE "STANDARD
PATENT RIGHTS CLAUSES"?

37 CFR 401.14 requires organizations to establish
a written agreement with all employees to disclose
promptly each subject invention made under a Federally
sponsored program and to execute all papers necessary
to file patent applications. By its acceptance
of an NIH award, a grantee or contractor organization
agrees to obtain written agreements from its employees
and:

•
Promptly report inventions to the NIH.

•
Elect, in writing, within two years,
whether or not to retain title.

•
File a patent application within one
year of electing title.

•
Acknowledge Government support in the
patent application and send page of application
containing Federal support clause.

•
Provide the Government with a royalty
free license to the invention; the confirmatory
license should be sent to the Office of Policy
for Extramural Research Administration (OPERA),
NIH.

•
Make reasonable efforts to attract small
business licensees.

•
Provide annual reports on the utilization
of the invention, including date of first commercial
sale or use and gross royalties received.

•
Agree that exclusive licensee will manufacture
the invention substantially within the United
States, if it is to be used or sold in the U.S.

4.
WHY PATENT?

Patent protection gives the owner of the patent
the right to exclude others from making, using,
offering to sell, selling, or importing into the
United States the invention during the lifetime
of the patent, thus protecting the incentive for
commercial development of the invention. However,
it does not give the public the right to use the
invention if it is claimed by another's patent.
A company will be more willing to make the investment
needed to commercialize an invention if it can
eliminate or decrease competition. When a patent
is licensed and successfully commercialized, it
can lead to royalties for the organization and
the inventor, economic development for the Nation,
and improvements in the public health. Patent
protection is the key component of technology
transfer. Of the legal options available, including
trademarks, trade names, copyrights, and licensing,
patenting is probably the most crucial to commercializing
research results. More than 200 years ago,
the Constitutional Convention included in the
U.S. Constitution the power "to promote the
progress of science and useful arts by securing
for limited times to authors and inventors the
exclusive right to their respective writings and
discoveries." Almost 90 years later, President
Lincoln addressed the importance of patenting,
when he said, "the patent system has added
the fuel of interest to the fire of genius."

5.
DO THE REQUIREMENTS FOR INVENTION REPORTING AND
COMPLIANCE WITH BAYH-DOLE VARY FOR DIFFERENT TYPES
OF ORGANIZATIONS?

Bayh-Dole legislation, which was also extended
to large businesses by the 1983 Presidential Memorandum,
applies to all grantees and contractors funded
by the U.S. Government. Non-profit organizations
are subject to three provisions in addition to
those that apply to all organizations:

•
Nonprofit organizations cannot assign
rights to an invention to a third party, unless
it is an invention management organization, without
permission from the Federal funding component;

•
Royalties must be shared with the inventor
and the remainder used for scientific research
and education; and,

•
Nonprofit organizations must give preference
to small businesses when licensing the inventions.

6.
WHAT ARE THE RESPONSIBILITIES OF A PRIME AWARDEE
VIS-A-VIS FLOWING DOWN BAYH-DOLE REQUIREMENTS
TO SUBGRANTEES/SUBCONTRACTORS UNDER FEDERAL AWARDS?

In accordance with 37 Part 401.14g, prime grantees
and contractors are required to include the Standard
Patent Rights Clause (401.14) in all subcontracts,
regardless of tier, for experimental, developmental,
or research work to be performed. That clause
requires subawardees to report directly to NIH
on any inventions developed with Federal funding.
It is suggested that the prime awardee include
a clause in its written agreement with the subawardee
that also requires notification to the prime when
an invention is made. This will ensure that prime
awardees have accurate information to complete
questions concerning inventions on the competing
and noncompeting applications and the final invention
statement.

7.
WHAT IS THE FIRST STEP IN THE INVENTION REPORTING
PROCESS AND WHO TAKES THAT FIRST STEP?

The first step, if the inventor believes he/she
has an invention/discovery, is to report it promptly
to the organization's technology transfer office,
the office of sponsored research, or the institutional
administrative official responsible for technology
issues. The employee/investigator is required
to report any invention in accordance with the
terms of the employee agreement he/she signed.
(Note: Organizations are required, as a condition
of Federal funding, to enter into employee agreements
with all appropriate staff.) After the inventor
reports the invention in-house, the appropriate
office is then responsible for reporting the invention
to the Government, as well as providing support
to the inventor for fulfilling the administrative
requirements for securing a patent and negotiating
license agreements if the invention is deemed
to have commercial value.

8.
WHAT ADDITIONAL STEPS ARE INCLUDED IN THE INVENTION
REPORTING PROCESS AND WHEN ARE THEY TO BE TAKEN?

The awardee organization is responsible for the
following:

•
Invention disclosure to the NIH, in
writing, within 2-months of the inventor's initial
report to the organization

•
Election of title to invention -- within
2-years of disclosure to NIH. Sometimes election
is made at the time of disclosure of the invention.
(For inventions disclosed to the public, notification
of the NIH 60-days prior to the statutory bar
date, which is usually one year after the date
of publication, sale, or public use.)

•
Non-election of title to invention (For
inventions not disclosed to the public, notification
of the NIH at least 60-days prior to the end of
the 2-year period after disclosure.)

•
Patent application -- within one-year
of election of title or publication, whichever
is earlier, provision to the NIH of the confirmatory
license and the page of the patent application
that contains the Federal support clause

•
Issued patent -- provision to the NIH
of the patent number and issue date at time of
issuance of the patent

•
Final invention statement -- prior to
closeout of the NIH grant or contract. This form
(HHS 568) is to be submitted directly to the awarding
component (See Term 9).

•
Unless otherwise specified, the information
should be sent to the Office of Policy for Extramural
Research Administration (OPERA), NIH.

9.
WHAT HAPPENS IF THE ORGANIZATION DECIDES NOT TO
ELECT TITLE ON THE INVENTION?

The awardee has two years after it discloses
an invention to the NIH to determine if it wants
to take title and file a patent application. If
the organization does not choose to elect title,
it must notify the NIH. Under these circumstances,
the NIH has the option to take title. The Government
evaluates the invention to determine whether patenting
and further development is in the public interest,
because of potential commercial interest or health
benefit. If the NIH chooses to elect title, the
inventor is guaranteed a portion of any royalties.

10.
WHAT IF THE NIH ALSO DECIDES NOT TO ELECT TITLE?
CAN THE INVENTOR GET TITLE?

Under these circumstances, after NIH consults
with the awardee title may be given to the inventor
if it is requested. If the inventor takes title,
he/she must abide by the Patent Rights Clause,
found at 37 CFR 401.14.

11.
HOW DOES THE GOVERNMENT BENEFIT, IF THE ORGANIZATION
ELECTS TO RETAIN TITLE TO AN INVENTION?

The government must be granted a "nonexclusive,
nontransferable, irrevocable, paid-up license
to practice or have practiced for or on behalf
of the United States the subject invention throughout
the world" (37 CFR 401.14.6.b; see also "Confirmatory
License" in the accompanying terms). The
Government does not get a share of the royalties,
but the public does benefit if a useful invention
is developed, reaches the market, and becomes
accessible to those who need it.

12.
IS THERE ANY HARM IN AN INVENTOR PUBLICLY DISCLOSING
AN INVENTION BEFORE REPORTING IT TO THE TECHNOLOGY
TRANSFER OFFICE?

Yes. Inventions should be reported to the awardee
organization prior to publication or presentation
at any open meeting, since failure to do so may
result in loss of the rights to the awardee organization,
inventor, and the Federal government in the invention.
Most foreign patent rights are immediately lost
upon publication or other public disclosure, unless
a patent application is already on file. In addition,
statutes preclude obtaining United States patent
protection after one year from the date of a publication
that discloses the invention.

13.
WHAT IS THE PURPOSE OF THE ANNUAL INVENTION UTILIZATION
REPORT?

An annual Invention Utilization Report is required
for all inventions for which a patent application
has been filed or that have been licensed, but
not patented (e.g., biological material). The
utilization reports must provide the status of
development, date of first commercial sale or
use, and gross royalties received. The NIH cannot
require a specific format for this report, but
a suggested format for this information is available
upon request from OPERA and on the world wide
web (http://era.info.nih.gov/Edison/). The Invention
Utilization Report is used to document the implementation
of the Bayh-Dole Act and determine whether or
not subject inventions are being appropriately
developed. If the organization fails to properly
develop an invention, 37 CFR Part 401.6 gives
the Government the right to "march in"
and, if the invention is deemed important for
the public good, develop it (see "March-In
Rights" in accompanying list of "20-20"
terms).

14.
WHY WOULD AN AWARDEE ORGANIZATION NOT PROPERLY
REPORT SUBJECT INVENTIONS TO THE GOVERNMENT AND
WHAT ARE THE CONSEQUENCES OF FAILING TO COMPLY
WITH BAYH-DOLE REPORTING?

Failure to report inventions appropriately is
usually caused by "ignorance of the law"
or a misunderstanding of the legislation and its
implementing regulations. An additional concern
that may contribute to a failure to report is
based on the incorrect premise that the Government
will inappropriately interfere with the commercialization
of subject inventions. In fact, the Bayh-Dole
Act provides very few restrictions on commercial
development. As long as Government funded inventions
are reported and commercially viable inventions
are being reasonably developed by the organization
(which is in everyone's interest), Government
involvement is limited to retaining its confirmatory
license. On the other hand, failure to comply
with the reporting requirements of the Patent
Rights Clause can result in loss of the recipient's
rights to an invention (37 CFR 401.14(d)) or the
use of the Government's right to march-in. In
addition, the latest version of the grant application
form PHS 398 (rev. 5/95) includes a penalty clause
for the improper reporting of an invention or
failure to report an invention.

15.
WHEN AN AWARDEE LICENSES A COMPANY TO USE AN INVENTION
DEVELOPED WITH FEDERAL FUNDS, WHAT INFORMATION
OR REQUIREMENTS MUST BE INCLUDED RELATIVE TO THE
GOVERNMENT'S RIGHTS IN THE INVENTION?

The financial aspects of the license are between
the awardee organization and the licensee. However,
the awardee must inform the licensee that the
Federal government has a nonexclusive right to
make or use the invention for Government purposes.
In addition, if the licensee is awarded exclusive
rights to the invention, the awardee must inform
it that it is obligated to manufacture the invention
substantially in the U.S., if it will be sold
or used in the U.S.

16.
WHO HAS THE RIGHTS TO DATA DEVELOPED UNDER NIH
GRANTS?

Under the grant mechanism, recipient institutions
have custody of and primary rights to data developed,
subject to the Government's right of access.

17.
WHAT HAPPENS TO AN INVENTION WHEN THE INVENTOR/PRINCIPAL
INVESTIGATOR TRANSFERS TO A NEW INSTITUTION?

The invention belongs to the awardee organization.
The Bayh-Dole Act requires that there be employee
agreements in place at the awardee organizations
that obligate inventors to assign title to Federally-
supported inventions to the organization. In return,
the inventor receives a portion of any royalties.
If the inventor moves to a new organization, the
rights to existing patents usually remain with
the former organization, although the inventor
remains entitled to a share of the royalties.
However, depending on the stage of development
of the invention, an inventor or the organization,
with NIH permission, may negotiate a transfer
of rights to the new organization.

18.
ARE ROYALTIES FROM PATENTED INVENTIONS CONSIDERED
PROGRAM INCOME?

Yes, but they are not considered general program
income. Thus, if no specific footnote appears
on the Notice of Grant Award pertaining to royalty
or other income from patents or inventions, its
inclusion as program income for the purposes of
the financial status report is not required. However,
such income must be reported on the annual utilization
report submitted each year by awardee organizations.
It is important to note that, according to the
Bayh-Dole Act, a portion of royalties must go
to the inventor and the balance must be used to
support scientific research and education.

19.
HOW DO ORGANIZATIONS SATISFY THE FEDERAL LAW THAT
REQUIRES AWARDEES TO REPORT INVENTIONS AND PATENTS
THAT RESULT FROM NIH FUNDING AGREEMENTS AND WHAT
IS NIH DOING TO ENSURE AND FACILITATE COMPLIANCE?

All awardee organizations are to use Form HHS
568 - "Final Invention Statement and Certification"
to closeout a grant or contract. The completed
Form should be sent directly to the grants or
contracts office of the awarding component. The
NIH has developed an on-line information management
system based on a client-server database in which
common files are established and data is viewed
or modified. The system was deployed in 1995 and
named 'Edison' (see "Edison" in accompanying
list of "20-20" terms) and includes
features that will significantly decrease the
amount of work needed for an organization to fulfill
the reporting requirements. NIH may obtain
title to inventions that are not properly reported
and elected.

20.
WHAT IF AN INVENTOR IS UNSURE THAT HE/SHE HAS
MADE A SUBJECT INVENTION? WHAT IF THE INVENTOR
AND/OR ORGANIZATIONAL OFFICIAL HAVE A QUESTION
OF A GENERAL NATURE? WHOM CAN THEY CONTACT FOR
ADDITIONAL INFORMATION?

Inventors should be aware that publication prior
to filing a patent application will immediately
destroy patent rights in most foreign countries.
Also, if the awardee organization elects rights,
but neglects to file a patent application or tell
the Government what action has been taken, a loss
of patent rights for the organization, the inventor,
and the Government may result. NIH may obtain
title if the patent application is not timely
filed. An inventor should work closely with
organizational technology transfer personnel.
Awardee organizations are encouraged to obtain
a copy of 37 CFR 401, which is available through
OPERA, NIH.

Additional assistance can be obtained from the
grants management and contracts management offices
of the awarding component. For situations beyond
the scope of the organizational technology transfer
official or the grants or contracts management
officers, Extramural Inventions and Technology
Resources Branch, OPERA, NIH, should be contacted.
The phone number is 301-496-1986. General information
and access to Interagency Edison is available
on the world wide web at (http://iedison.gov).

INVENTION REPORTING TO
THE NIH: 20 TERMS
20 INVENTION REPORTING TERMS WITH WHICH EVERY NIH
AWARDEE SHOULD BE FAMILIAR.

1. ASSIGNMENT.

Transfer of title or ownership in patent rights
in the form of a written assignment document.
By law, an inventor has initial ownership of an
invention. However, awardee organizations are
required by the Bayh-Dole Act to have in place
employee agreements requiring an inventor to "assign"
or give ownership of an invention to the organization
upon acceptance of Federal funds.

2. BAYH-DOLE ACT.

Enacted on December 12, 1980 The Patent &
Trademark Act (Public Law 96-517) created a uniform
patent policy among Federal agencies that fund
research. Bayh-Dole enables small businesses and
non-profit organizations, including universities,
to retain title to materials and products they
invent under Federal funding. Subsequent amendments
created uniform licensing guidelines and expanded
the law's purview to include all Federally-funded
contractors (Public Law 98-620).

3. CONFIRMATORY LICENSE.

Acknowledges right of retention by the U.S. government
of a "nonexclusive, nontransferable, irrevocable,
paid-up license to practice or have practiced
for or on behalf of the U.S. the subject invention
throughout the world." Such a license is
always retained by the U.S. government when the
awardee elects title to an invention, regardless
of the title holder's licensing strategy. License
agreements for Federally-funded technology must
include a clause addressing the Government's rights
and interests, i.e., "The Licensee acknowledges
that the U.S. Government has certain rights in
this invention under 37 CFR 401 including a non-exclusive,
non- transferable, paid-up license heretofore
granted by the Licensor."

4. EDISON.

The electronic system for invention reporting
to the NIH and other federal agencies. The system
is based on a client/server database architecture
in which a common file is established and data
is viewed or modified in real-time. The system
allows input and updates of records and includes
features in its architecture that significantly
decrease the amount of work presently done by
awardee organizations to fulfill invention reporting
requirements. The system, deployed originally
in 1995, was 'Edison,' in recognition of the prolific
American inventor. In 1997, additional agencies
agreed to allow their grantees to use the Edison
system to report inventions funded through their
agency. At that point, the name of the system
was changed to Interagency Edison (iEdison).
Today, 16 agencies are participating in iEdison.
Grant recipients for any of the agencies listed
on the iEdison site (http://iedison.gov)
may request authorization to use the electronic
system for invention reporting.

5. ELECTION OF TITLE.

In accordance with 37 CFR 401 - Standard Patent
Rights Clauses, the notification of the decision
to retain title to an invention. The election
must be in writing, or sent electronically, and
is due within two years of disclosure of the invention
to the NIH.

6. EXTENSION OF TIME.

In relation to disclosure, election, and filing,
requests for extension of the time needed to evaluate
a subject invention or identify a licensee, may,
at the discretion of the agency, be granted.

7. FEDERAL SUPPORT CLAUSE.

Required language on a patent application and
any patent issued for an invention arising from
Federally funded activities: "This invention
was made with Government support under (identify
support) awarded by the PHS. The Government has
certain rights in the invention."

8. FILING.

The act of submitting a patent application to
the Patent Trademark Office or its foreign counterpart.
Failure to file within the one-year "grace-period"
for public disclosure disqualifies the invention
from patent protection in the U.S.

9. FINAL INVENTION STATEMENT AND CERTIFICATION.

Form HHS 568, due prior to close-out of a grant/contract
which lists all inventions made under the grant
or certifies that there were no inventions.

10. FIRST
TO FILE.

System used internationally for establishing
who has the right to patent an invention when
more than one party is claiming a single invention.
"First-to-Invent" is the system used
in the United States.

11. INTELLECTUAL
PROPERTY LAW.

A widely used term to designate a field of law
that encompasses products of the human mind or
intellect (e.g., patents, inventions, trademarks,
copyrights).

12. INVENTION/SUBJECT
INVENTION.

An invention is anything made by the "hand
of man," that is a new, useful, and unobvious
process, machine, manufacture, or composition
of matter, or any new and useful improvement thereof.
The term "invention" means any invention
or discovery that is or may be patentable or otherwise
protectable under Title 35 of the U.S. Code. The
term "subject invention" means any invention
of an awardee conceived or first actually reduced
to practice in the performance of work under a
Government funding agreement (grant, cooperative
agreement, contract).

13. INVENTION
DISCLOSURE.

A written report to the NIH that includes the
title, the name(s) of the inventor, a technical
description of the invention, the grant/contract
number(s), and date of any public disclosure.
Due within two months of inventor's initial report
to employer.

14. INVENTION
UTILIZATION REPORT.

Annual report to NIH regarding status of commercialization
of an invention for which a patent application
has been filed. These reports are used to record
the status of development, date of first commercial
sale or use, gross royalties received by the awardee,
and compliance with Bayh-Dole legislation. NIH
is very lenient in accepting information in any
format, provided the basic required information
is submitted. Utilization reports can be submitted
electronically by grantees who have an iEdison
account. A paper copy of the suggested format
is available from OPERA, NIH (See: utilization_reporting.jsp).

15. LICENSE.

The right to develop and practice a patent, invention,
trademark, or copyright. A license is a written
document granted by the owner of a patent, giving
permission to another to make, use or sell articles
embodying the invention.

16. MARCH-IN
RIGHTS.

The government's right to require that the awardee
provide nonexclusive, partially exclusive, or
exclusive license, under reasonable terms, to
responsible applicants, if necessary, because
the awardee organization's licensee has not taken
(or is not expected to take) effective steps within
a reasonable time to achieve practical application
of an invention or is necessary to alleviate a
health or safety need.

17. PATENT.

A grant by the Federal Government to an inventor
of the right to exclude others from using, selling,
or making an invention during the lifetime of
the patent.

18. REDUCTION
TO PRACTICE.

Actual reduction to practice is the actual construction
or working of the invention for its intended purpose.
Constructive reduction to practice is the filing
of a patent application with the Patent Trademark
Office. An invention is a subject invention if
it is conceived or first actually reduced to practice
in the performance of work under the grant or
contract.

19. STANDARD
PATENT RIGHTS CLAUSE.

Details awardee obligations and responsibilities
to the U.S. government with regard to Federally-supported
inventions. Full text of the patent rights clause
(37 CFR 401.14) can be found on the iEdison site
(37CFR401.jsp#401-1).

20. TECHNOLOGY
TRANSFER.

The transfer of research results to the commercial
sector or interchange between the private and
public sectors.